Banking

In 1987 the García government attempted to nationalize Peru's banks,
financial institutions, and insurance companies. Under the legislation,
which Congress approved despite a judicial ruling against the
government's proposals, the government was to hold 70 percent of shares
of nationalized banks, with the remaining 30 percent offered for sale to
the public. The legislation excluded foreign banks operating in Peru
from the nationalization program but prohibited them from opening any
new branches in Peru. This set of proposals stimulated widespread public
opposition and provoked a breakdown of cooperation between business
leaders and the government. Private investment fell abruptly. García
attempted to pursue the nationalization despite all the opposition, but
adverse judicial rulings slowed implementation and finally killed the
proposals.

In early 1991, Peru's financial system included four development
banks, twenty-two commercial banks, eight credit firms (financieras
de crédito), fifteen savings-and-loan mutuals (mutuales),
twelve municipal savings-and-loans institutions, and the Savings Bank of
Lima (Caja de Ahorros de Lima). In May 1991, the Fujimori government
introduced a new package of economic measures designed to liberalize the
banking system. The government suspended the powers of the Central
Reserve Bank (Banco Central de Reservas, or BCR--hereafter Central Bank)
to set interest rates and allowed them to float according to market
forces. It also stipulated that in the future foreign banks would be
able to operate in Peru under the same conditions as Peruvian banks. In
addition, it amended the Agrarian Reform Law of 1969 by allowing farmers
to put up their land as collateral for bank loans. When it went into
effect in June 1991, the new banking law shook up the state banking
sector, which employed 20,000 people and included six state-owned banks.
The new law eliminated specialized banks, credit firms, and
mortgage-lending mutuals, forcing them to reorganize as commercial
banks.